Priceline Stock – Correction Opens Up Rare Opportunity…

Priceline Is Having a Fire Sale

It was an ugly session for Priceline Group Inc (NASDAQ:PCLN) on Tuesday after the stock cratered over 14% on weak forward guidance for the fourth quarter.

Having followed PCLN stock since it was trading at low single digits in 2003, the meteoric rise in Priceline stock has been impressive to witness.

But instead of running for the exits, I view the sell-off as a buying opportunity to accumulate shares of this best-of-breed online travel provider at a cheaper price.

The reality is that if you had sold Priceline stock each time the price tanked, you would have forfeited the staggering gains that subsequently followed.

The previous time I looked at Priceline, earlier in the year, the stock was hovering at around $1,760. By August 8, PCLN stock was trading at a record $2,067.99.

At the prevailing $1,690, Priceline is down $377.00, about 18.25% from its high. The last time PCLN stock fell over $300.00 was the period from December 2015 to February 2016 when Priceline broke below $1,000. If you had liquidated your position back then, you’d have missed the subsequent double to over $2,000.

Chart courtesy of StockCharts.com

Now, to make it clear, I’m not suggesting the same thing will happen this time, but the current risk-to-reward for PCLN stock is intriguing for traders.

The market put up the “for sale” sign after Priceline cut its fourth-quarter EPS and revenue estimates by over 10%.

Why PCLN Stock Is Worth a Look

While the cut was disappointing, it was due more to competition rather than a structural issue with the company.

Rising rivals such as privately held Airbnb, Inc. are clearly pressuring the players in the online travel segment, which will need to be addressed.

The problem for Priceline and other online travel booking sites is that Airbnb plays by different rules since the rental units are generally privately owned and are not subject to the same fees and taxes paid on hotel rooms. In addition, rentals via Airbnb tend to be more flexible and offer much more choices for travelers.

Priceline will need to deal with the disruption in the hotel segment and will likely need to adapt and fine tune the way it operates.

Yet at the end of the day, Priceline is still the “best of breed” in online travel and I don’t see this changing anytime soon. The hotel segment is only one area of the company’s business, albeit a pretty significant part.

Analyst Take: 

The following quarters and years will see if Airbnb continue to take market share away from Priceline and others. If Priceline cannot halt the erosion in market share, I would then likely take another look at the stock and see if my current bullish view changes.

The chart shows a breakdown from a bearish head and shoulders formation that saw PCLN stock fail to hold the neckline support.

Chart courtesy of StockCharts.com

This is a bearish formation that needs to be monitored but based on the past chart breakdowns, I wouldn’t be surprised to see Priceline stock attracting buying support and rally.

Of course, we could see more weakness in PCLN stock before an eventual move back toward the $2,000 level.